Quarters 1–2/2012: VERBUND increases operating result and Group result

7/25/2012

• Operating result: +11.9% to €434.7m Group result: +12.4% to €198.2m 2012 outlook: operating result of about €800m, Group result of about €350m

VERBUND, Austria’s leading utility and one of Europe’s largest generators of hydropower, presents clearly positive business performance for the first six months of 2012 despite an operating environment that remains difficult. It was able to significantly increase its operating result and Group result due to the very good water supply from rivers and higher average sales prices for the electricity volumes sold in the previous year. VERBUND continues to invest consistently in hydropower and wind power in particular in Austria, as well as in the modernisation of the electricity transmission grid. Assuming an average water supply in the second half of 2012, VERBUND expects a Group result for the full year at the previous year’s level.

VERBUND’s operating result increased in the first half of 2012 by 11.9% to €434.7m compared to the first half of 2011. This was primarily due to a 26.8% increase in hydropower generation as a result of the very good water supply, which was 9% over the long-term average in the first six months and 23 percentage points over the previous year’s level. In addition, VERBUND profited from an overall higher price level. At an average of €56.0/MWh, electricity prices applicable for the 2012 financial year which were already traded in 2011 with forward market contracts were up 12.3% over the 2010 level. As a result of its marketing and hedging strategy, VERBUND already included around 60% of its own generation in its 2011 price calculation over the forward market. In contrast, spot market prices fell in the first half of 2012 by 18.9% to €42.75/MWh. The ongoing difficult economic circumstances for gas power plants in Europe had a negative impact on the operating result. Once again, an impairment loss had to be recognised for the ultramodern combined cycle gas turbine power plant (CCGT) in Mellach/Styria, which had been officially opened on 22 June 2012. Nevertheless, the Group result in the first half of 2012 increased by 12.4% to €198.2m.

European electricity market in transition

VERBUND Chairman of the Executive Board Wolfgang Anzengruber: “The new energy age requires fundamental changes from Europe’s energy market and politics, be they in the electricity market design, the CO2 regime, the gas market or in government subsidies. However, since we at VERBUND generate nearly 90 percent of our electricity from the renewable and competitive source – water –, we expect long-term positive effects, even if the currently uncertain operating environment of the European and global economy is impacting all industries.”

The expansion of new renewables, which is still heavily reliant on government subsidies, the weak and in part declining demand for electricity due to the economy and significant excess capacities result in the current low electricity prices. In addition to low electricity prices, gas power plants are also under massive economic pressure from long-term gas supply agreements, which are expensive because they are oil-indexed. The incentive effect of the carbon market in support of low-carbon generation technologies is currently ineffective – thus, brown coal-fired power plants currently have the highest economic investment incentive of all technologies. The result of this market situation is restrained capital expenditure for flexible power plants, such as gas and pumped storage power plants. However, just like more efficient grids, these power plants are necessary in the medium term to compensate volatile generation from renewables and thus for the European security of supply.

Full concentration on hydropower and wind power

VERBUND is meeting these challenges with a clear strategy and continues to invest in hydropower supplemented by wind power in order to strengthen its position as the leading generator of renewable energy. One example is the Reisseck II pumped storage power plant in Carinthia (430 MW), where work is proceeding quickly. This power plant will increase the turbine capacity of the Malta/Reisseck power plant group to 1,459 MW from 2014. VERBUND is also making progress in expanding wind power as a clean supplement to hydropower. The Group has doubled its 3 wind farms in the Lower Austrian district of Bruck an der Leitha to around 110 MW. The ground-breaking ceremony for the Hollern II and Petronell-Carnuntum II wind farms was held in June 2012; the positive environmental impact assessment (EIA) notice for the wind farm Bruck-Göttlesbrunn was received in July.

International markets

In Germany, VERBUND’s second-most important sales market after Austria, the Group succeeded in further expanding its market position and increased its electricity sales volumes by 8.1%. The Bavarian Gars power plant on the Inn River will be expanded to 30 MW by 2013 with an additional engine.

In Turkey, VERBUND continued the investment and expansion programme with its partner Sabanci. The Dagpazari wind farm (39 MW) was connected to the grid in May 2012. There are currently 12 power plants under construction in Turkey and more are being planned. Around 5,000 MW of installed capacity is expected by 2015.

In Italy, the Aprilia CCGT (800 MW) went into operation in quarter 2/2012. With more than 4,500 MW of installed capacity, the goals set for this market have nearly been reached. However, the profitability of Sorgenia declined significantly due to the difficult situation for gas power plants and the recession in Italy. Sorgenia will therefore introduce restructuring measures in order to significantly improve its results and reduce its debt.

In France, VERBUND successfully sought cancellation of the gas supply agreement for the CCGT in Pont-sur-Sambre (412 MW) in quarter 2/2012 within the framework of a safeguard procedure. This enables access to cheaper gas prices on the spot market and significantly improves the profitability position of the power plant. The Toul CCGT (413 MW) is scheduled to be put into operation at the end of 2012.

In Romania, VERBUND placed the first part of the wind farm Casimcea (99 MW) in operation in May 2012; construction began simultaneously on the second part of the wind farm with total capacity of 200 MW.

In Albania, the Ashta hydropower plant on the Drin River fed electricity into the grid for the first time in June 2012. Once both power plant stages are completed at the beginning of 2013, it will supply around 100,000 households with electricity.

Outlook for the full year 2012

Assuming average water supply of water in the second half of 2012, VERBUND expects an operating result of around €800m and a Group result of around €350m for the entire year. However, if the conditions in the overall economy and the energy sector in Europe continue to worsen, additional negative effects on earnings in the second half of 2012 cannot be ruled out. The dividend policy will aim for a payout ratio of approximately 50% of the Group result.

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